The outbreak of this deadly virus is cause for concern. Rather than panic, calm is advised. The same goes with your share portfolio.
It's a delicate subject, and people's lives are at risk, so I'll state right here, up top, that I do not intend to make light of this public health concern. I share the sympathies that we all have for individuals afflicted by the swine flu. (I've experienced a delirium-packed, 10-day version of the usual seasonal flu, and I wouldn't wish this illness on my worst enemy.)
That said, the reactions of the investing community already look ridiculous: "Markets Down on Swine Flu" read the headlines. Other writers will try to convince you to pile into vaccine names like GlaxoSmithKline (LSE: GSK), or companies like British Sky Broadcasting (LSE: BSY), for which a simplistic, "stay-at-home" argument can be made. This is simply rank trend speculation in reverse.
How To Really Profit
If you really want to find opportunities relating to the swine flu story, I suggest you do the opposite of what most people are advocating. For instance, consider inverting one particularly brazen and short-sighted call that was reported by Bloomberg: UBS downgrades Mexican stocks from "top pick" to "underweight" because of the swine flu.
Really? An entire country's strongest businesses will be permanently impaired because of this health crisis? Would you write off entire segments of the UK economy if the illness got worse here? Would you sell Unilever (LSE: ULVR)? Ditch Tesco (LSE: TSCO)?
Sure, the Mexican economy is generally more fragile than ours, but most of the big-name firms trading on our exchanges are anything but weak. Beverage and minimart king FEMSA will likely sell fewer soft drinks and beers over the coming weeks. Will Gruma sell fewer tortillas, Industrias Bachoco fewer chicken chunks? Probably.
Will this matter for the long term?
Very Unlikely
If you are investing in strong names for the long term -- and that's how you should be investing -- these are the times when you should be more interested in buying stocks, not less. Flu epidemics are terrible, but they're also normal. So are economic cycles and (in Mexico) the occasional currency panic.
Buying good companies when the headline news is bad is the hardest thing to do (psychologically), but it's the simplest way to buy low. And buying low makes it a lot easier to sell high.
That's the takeaway from the wealthiest investor in the world -- Warren Buffett, who made his fortune buying companies with competitive advantages on the cheap, often during times of uncertainty. Despite recessions, oil shocks, currency convulsions, SARS, and bird flu, Berkshire Hathaway has made him very wealthy.
Over at The Motley Fool's Champion Shares, Maynard Paton loves to take advantage of exactly this kind of short-term market craziness. At times like this, he is more interested in his favourite shares, not less so. If you want to read his most recent recommendations, a free trial is on the house. Click here to get started.
More on the economy and the markets:
> This article was first published on Fool.com. It has been updated.
> Of the companies mentioned in this article, Bruce Jackson has a beneficial interest in GlaxoSmithKline shares, having bought them way before the outbreak of swine flu.
